HMV is hoping a bumper line-up for albums and rampant demand for computer games will help it keep up the momentum from a record Christmas.

The music, books, film and games chain reported its strongest Christmas sales growth on record yesterday and said it was not seeing the belt-tightening bemoaned by high-street rivals in recent days.

In stark contrast to a horrible Christmas 2006, marked by profit warnings and senior management departures, the owner of HMV music stores and Waterstone's book shops said sales were up 9.4% on a like-for-like basis - the best growth "by a long way" since the company floated in 2002.

Sales were particularly strong at its UK and Ireland HMV stores thanks to strong demand for games, consoles and DVDs. It also shook off a troubled music market to increase CD sales. The shares soared after it predicted full-year pre-tax profits would be near the top end of City expectations at about £48m.

Simon Fox, chief executive, who has been pushing through an overhaul of the business to cater for more online shoppers and greater demand for games, said the changes had helped "deliver a highly successful Christmas".

"The product markets that we operate in have generally been buoyant, it was a very strong Christmas for DVD ... it's been a very strong Christmas for games."

"We've moved into higher growth areas like technology products." Part of the gains were also down to "a lot of self-help", he added, referring to store refits and new offerings online.

Asked about warnings of a tough consumer climate ahead from the likes of Marks & Spencer, Fox declined to share their concerns. "I am aware of what others are reporting, but we are not seeing it. We think we are in good shape to withstand whatever comes our way this year."

He said part of HMV's lower sensitivity to consumer jitters could be down to the fact that its typical transaction was £10.

It has been forced to cut prices in recent years as it competes with supermarkets and online shops. It has increased the games in its sales mix (something that is generally less profitable) but it assured the market margins were being maintained.

Although music sales around the world have been under pressure, the retailer was upbeat about the year ahead. Fox said the physical music market was down 12% at Christmas but HMV sales rose 2%. "Our view is that when there is good material and good releases the music industry will prosper. We are pretty confident."

On games he was even more upbeat, pointing out that strong consoles sales at Christmas would drive demand for software. Over Christmas, the market for software and hardware was up 30% in volume terms; at HMV it was up 45%, said Fox.

Within the group, HMV UK & Ireland enjoyed like-for-like sales growth of 14.1% over Christmas. Waterstone's performance was less impressive, with sales at the bookseller up 4% on a like-for-like basis.

Backstory

CD sales have been falling for years but HMV bucked the trend this Christmas and is predicting strong sales ahead thanks to an album line-up that includes new releases from U2, Madonna, Kasabian, Keane and Dido.

Other music industry figures have also said that 2008 could bring some much-needed respite thanks to new material from big-selling artists after a particularly tough 2007, which saw a continuation of the trend towards the cherry-picking of single tracks online.

HMV's chief, Simon Fox, asserted yesterday: "I think there is life in the CD yet." Gift-buying accounts for 25%-30% of all CD purchases in the UK, or some 33m CDs a year, according to the UK music industry association BPI. An estimated 40%-45% of CDs bought in the last three months of the year are presents.

"A sizeable chunk of the year's music sales occur in the run-up to Christmas; labels have been quick to capitalise on this demand and expand consumer choice by reissuing albums with additional songs and other extras such as videos," said BPI's head, Geoff Taylor.